Retail Payment Risks

All types of retail payment instruments are subject to varying degrees of operational, security and fraud risks. Some, like currency and cheques, are perhaps more vulnerable to loss and theft than others. However, with card payments, security risks are a primary concern. Credit card payments for mail and telephone orders involve even stricter security standards than face-to-face payments. For example, retailers may be obliged to honour charge-back provisions that require them to refund immediately in the event of a repudiated payment (www.apca.com.au). The introduction of integrated circuit (IC) chips into payment cards could help reinforce the PIN as a security device. In addition, secure transmission standards have been developed for remote payments in which card numbers are transmitted electronically.

The immediacy and finality of e-money payments differ depending on the type of system and the laws and regulations applicable in different jurisdictions. Other payment risks depend on the technical design of an e-money system, its procedural rules and risk guidelines, the host country’s laws regarding consumer protection and risk allocation, and the incentives for e-money issuers and distributors to comply with these rules (Andrieu, 2001). E-money also has the vulnerability of being stolen or used illegally. Transfers of e-money over computer networks can be intercepted and manipulated. Losses could also result from accidents or damage to electronic devices, or from operational error or malfunctions. Finally, consumers may also be exposed to financial losses, if the e-money issuer becomes insolvent (Andrieu, 2001).